How To Keep Your Crypto Safe In The Wake of FTX & Kraken?

Cryptocurrencies, markets, exchanges, and the entire broader ecosystem is essentially the wild west of the global financial system.

While the lack of regulatory hurdles and protectionist policies have helped usher in remarkable growth and innovation in this segment in a relatively short period of time, they’ve also given rise to countless scams, thefts, catastrophic failures, the most notable ones being FTX and Kraken in recent weeks.

This begs the question, are your cryptocurrency holdings safe, and if not, what are some steps you can take to keep them safe in the face of a wide range of threats?

1.  Consider Cold Storage

In some ways, cold storage of your crypto assets is the perfect option to protect it from a wide range of external threats, while in some other cases, it seems absolutely crazy. Cold storage essentially refers to storing your cryptocurrency assets offline, either on a USB or a paper wallet.

Often considered a relic of the bygone era in the early age of cryptocurrencies, cold storage still remains one of the safest options available, and an answer to many of the new risks we’ve encountered in recent years.

There are, however, drawbacks, mainly pertaining to the physical loss, theft, or damage of the storage device, which some people have experienced over the past few years.

2.  Pay Attention To ‘Proof of Reserves’

The FTX fiasco essentially involved the exchange using its reserves to trade and invest on its own account, without taking permission from the users, or compensating them in any way.

While this is similar to how banks function, they are at least regulated and monitored by concerned authorities, whereas crypto exchanges don’t have to adhere to any such regulations.

They can take limitless risks using customer funds, often without the latter ever realizing it.

Investors and traders should consider buying and keeping cryptocurrency using a safe cryptocurrency platform, ideally, one that publishes its proof of reserves, that is independently audited, for all parties to examine.

3.  Use Two-Factor Authentication

While crypto exchanges acting recklessly, or misrepresenting their reserves is a significant risk for investors, a much bigger, and prevalent threat pertains to accounts getting hacked, and becoming victim to unauthorized transactions.

Hackers can make use of sophisticated phishing emails to trick you into sharing your personal details, or the old fashioned social engineering, especially if you have an easy to guess password.

However, this issue can be easily mitigated by opting for two-factor authentication on your exchange. This way, every time you login, make changes to your account, and transact, you will be asked for a one-time password, delivered to your phone and email ID.

4.  Back-Up & Store Your Seed Words Securely

Seed words are essentially a series of words that can be used to cryptographically derive all of your account keys. Anyone who has access to these words, can access all of your accounts tied to these words.

As a result, it is crucial that you back-up and store these words securely, as opposed to saving it in a text file, or taking a screenshot of it on your phone.

The best option would be to write it down on a piece of paper and store it in a safe deposit box or locker, with no one apart from you knowing about it. The locker can include a nominee, so that the key gets passed on to your next of kin, in case something happens to you.

Final Words

No matter how many challenges and upheavals the crypto markets face, there is no stopping its onslaught on the global financial system.

These scams and scandals have shown us the risks of this concept, that is by all means, still at its nascent stages. With the right understanding, and by taking the required steps, users can ensure nothing comes between them and their crypto assets.